Wednesday, January 30, 2013

Oil Imports and its Import

U.S. imports are falling rapidly. By 2014, the EIA expects the country to import just 32 percent of its oil, down from 60 percent in 2005. Some of this is recession related but the U.S. is also producing more oil and oil alternatives.

The price of oil has always been a focus point for economists as it impacts GDP, acting as a sort of tax on the economy. (Apparently we prefer our growth inhibiting taxes to be self imposed.) But there is more here than just volume of imports. Price and total costs are the real points. Money for imported oil leaves the economy like narcotics money and is unavailable for productive domestic use. So, despite our decrease in oil imports, we are still spend a lot on it, more next year than in any year between 1983 and 2003.

So beware the politician pointing to our success in domestic production; cost is the point.

Here is a graph on the relationship between oil import expenditures and GDP: (from Michael Levi)